Decontrolling urea: What do experts expect from GoM meet?

The group of Ministers (GoM) is going to meet to decontrol urea prices on January 5, 2011, reports CNBC-TV18. The Centre has apparently outlined a plan to free up urea prices and bring it under the purview of the Nutrient Based Subsidy (NBS) regime from FY12. The government has, effective from April 2010, decontrolled prices of all non-urea fertilisers.

In an interview with CNBC-TV18, Tarun Surana, Research Analyst at Sunidhi Securities & Finance Limited and Shankar Narayan, CMD of Fertiliser & Chemicals Travancore gave their perspectives on the possible outcome of GoM's meeting to decontrol urea and the way forward for the fertiliser industry. Below is a verbatim transcript. Also watch the accompanying video. Q: Can we expect something from the decontrol side for urea or is that like a far fetched expectation? Surana: The expectation was in fact of a decontrol, the meeting was supposed to discuss the decontrol proposal. However, what we are picking up from sources now is that decontrol may not come. But what we probably are going to hear is a modified Nutrient Based Subsidy (NBS) III, which is nothing but a modification of the existing NBS III regime in which currently urea is. Earlier there was talk of NBS implementation for urea. In fact the finance minister had a meeting with industry veterans to discuss the proposal and understand from the industry what they are expecting on this front. However, the department of fertiliser, especially the fertiliser minister, seems to be against the decontrol move right now and hence the group of ministers, which consist of the agriculture minister, finance minister and the fertiliser minister as well as the fertiliser minister of state. We expect modified NBS proposal to go through this time rather than the decontrol proposal to go through. Decontrol will have to wait for some more time. Q: What is your own hunch? If you have spoken to someone in the industry or in the ministry, are you expecting that decontrol itself will be attempted? What are you expecting from the government in this week? Narayan: In fact some modification is required on pricing of urea to attract more investment because unless the industry gets good return no fresh investment will take place in the sector of the fertiliser. So the ministry is considering this requirement and I am hopeful that some kind of favourable policy will come. I am not able to tell you now what direction they are going to take on this issue. But a policy which ensures reasonable return to industrialists who invest in these kinds of fields will emerge within a few days. That is my feeling about it. Q: What are you expecting in terms of possible changes to NBS? Surana: In terms of modification to NBS III, the key proposal that we are expecting is fixed cost subsidy reimbursement that will be going up. So about Rs 350 per tonne should be an increment in the fixed cost subsidy. The fixed cost was determined in the year 2003 and since then has not been revised so it